Paying contractors only for finished work: how do you set up the draw schedule?

Question

Most of the contractor horror stories on here have the same root: money went out ahead of the work. Once a crew has been paid for more than they've finished, you lose most of your leverage to get them back on site.

A simple structure that keeps payments behind progress:

• Write the draw schedule into the contract before work starts. Each draw is tied to a milestone anyone can check, like "rough plumbing and electrical passed inspection" or "drywall hung and taped", not "about 50% done."
• Put a dollar amount on each milestone that's close to the value of the work in it, so no single draw gets ahead of the job.
• Verify before you release. Walk it, or get dated photos and the inspection card if you can't be there.
• Keep a holdback until the final punch list is finished and lien waivers are in hand. Many owners hold back 5 to 10%, but some states cap retainage, require it, or set when it must be released, so check the amount and release terms with an attorney.
• If materials have to be bought up front, pay the supplier directly or reimburse against receipts instead of handing over a lump sum.
• Keep a running total of contract value, paid to date and remaining for each contractor, so you always know if anyone is ahead of their work.

Write the draw schedule into the contract before work starts. Each draw is tied to a milestone anyone can check, like "rough plumbing and electrical passed inspection" or "drywall hung and taped", not "about 50% done."

Put a dollar amount on each milestone that's close to the value of the work in it, so no single draw gets ahead of the job.

Verify before you release. Walk it, or get dated photos and the inspection card if you can't be there.

Keep a holdback until the final punch list is finished and lien waivers are in hand. Many owners hold back 5 to 10%, but some states cap retainage, require it, or set when it must be released, so check the amount and release terms with an attorney.

If materials have to be bought up front, pay the supplier directly or reimburse against receipts instead of handing over a lump sum.

Keep a running total of contract value, paid to date and remaining for each contractor, so you always know if anyone is ahead of their work.

What percentage do you hold back until the final walkthrough, and has a contractor ever pushed back on it?

Vladimirs Veiss · Answer

@Brandon Hadler great topic, thank you! We came to the same conclusion on our renovation jobs in Switzerland, with one difference: the owner's money doesn't go straight to the contractor, it goes through the platform. The contractor gets paid only for work that's actually done.

Our split is 40% before the start, 40% during the work by blocks, and 20% after the final check. Each block closes only with photos and a signed acceptance, and only then is that part released to the contractor. So the owner never pays ahead of the work, and the contractor knows exactly what he needs to show to get paid.

Have you seen anyone in the US run payments through a third party like this, or does it usually go straight from the owner or lender to the contractor? Have a great day!

Amr Magdy · Answer

@Brandon Hadler the running total per contractor is the piece that saves people. If each draw is logged on the project against its milestone with the photo attached, anyone on the team can see in a few seconds whether a crew is ahead of their work, not just whoever signs the checks.

Divin Kanyama · Answer

@Brandon Hadler This is one of the clearest ways to reduce contractor risk: payments should reflect verified value already in place, not promises about what comes next. I generally view a 10% holdback as a reasonable starting point, subject to local law and the size and duration of the job.

Good contractors may negotiate the percentage or ask for portions to be released as inspections pass, but pushback is easier to manage when the draw schedule, verification method, punch-list standard, and release timing are agreed to before mobilization. If the contractor needs heavy upfront funding, direct supplier payment or joint checks can protect both sides without putting the owner ahead of the work.

One less-obvious safeguard is to match each payment with the appropriate conditional or unconditional lien waiver from the contractor and key subcontractors or suppliers. A project can look fully paid from the owner’s perspective while unpaid downstream parties still create lien exposure. Clear paperwork and consistent enforcement matter as much as the retainage percentage.

Richard Neese · Answer

We've structured several different ways of doing this. I have a construction company that works as a captured contractor for my Real estate holding company . We pay every friday and only pay for work done. We require an invoice and pictures of work done at a minimum and try our best to walk the project or video walk through . Invoices and pictures are due thursday by 1pm. This allows us to schedule walk throughs and balance our books if we have large expenditures going out . If its not in then we do it the following week. It took a couple of months to get everyone trained, but if a contractor doesn't play by our rules on payroll we expect future problems and then we don't work with them. I'm doing 30-50 projects a year on SFH for rental and flips so our volume is there and the contractors know if we make them wait til friday then the money will be there.

Christian Leon · Answer

From the lender side, we fund rehab in draws too, and the same logic holds: a draw only goes out after an inspector or dated photos confirm the stage is actually done. A good rule is to never let funds released run more than about 10% ahead of verified progress. On a $60K rehab that means you can be out $6K at most before the work catches up. I would also ask each sub for a lien waiver with every draw, not just at the end, so you are not chasing paperwork on a finished job. Happy to run numbers on a draw schedule if useful.

Brandon Hadler · Answer

Good call on materials sitting in the driveway. Paying for delivered materials is one of the quieter ways a draw gets ahead of the work, since a pallet of tile isn't installed tile.

Your point on size is the part people miss. A 5% holdback on a small bathroom job is a few hundred dollars, which isn't enough to bring anyone back for a punch list. Do you set the final payment as a percentage, or as a fixed dollar floor so it still matters on the smaller jobs?

James Jones · Answer

Draws only work if the schedule is written before anyone picks up a tool.

On our rehabs in Memphis we tie every payment to a finished, inspected stage, not to time passed and not to materials sitting in a driveway. Demo done, rough-in done, drywall done — each stage has a clear finish line, and no finished stage means no check. Keep the final payment meaningful until after the punch list and the final walkthrough are done. The 5 to 10% holdback you mentioned only works if it is enough money that finishing matters more than walking away. Yes, contractors push back, usually the ones who need your draw to fund their last job. The good ones already work this way.

Paying contractors only for finished work: how do you set up the draw schedule?

7 Replies